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Section 1.1502-19T applies to adjustments and determinations of basis of (including an excess loss account in) the stock of a member occurring on or after January 23, 2006.The applicability of §1.1502-19T will expire on January 23, 2009.Final and temporary regulations under section 367 of the Code amend income tax regulations under sections 367, 884, and 6038B dealing with statutory mergers or consolidations under section 368(a)(1)(A) involving one or more foreign corporations, and provide guidance necessary to facilitate business electronic filing under section 6038B. Final regulations under section 358 of the Code provide a tracing approach for the determination of basis of stock or securities received in exchange for or with respect to stock and securities in certain transactions. Prior to issuance of those regulations, taxpayers may rely on the reasonable cause procedure set forth in proposed regulations section 1.1503(d)-1(c)(1), as modified by this notice, to cure late filings under the current regulations.

The text of the temporary regulations also serves as the text of the proposed regulations (REG-138879-05) set forth in the notice of proposed rulemaking on this subject in this issue of the Bulletin.The final and temporary regulations affect shareholders of corporations.On May 3, 2004, the IRS and Treasury Department published a notice of proposed rulemaking (REG-116564-03, 2004-1 C. 927) in the (69 FR 24107) that included regulations under section 358 (the proposed regulations) providing guidance regarding the determination of the basis of shares or securities received in a reorganization described in section 368 and a distribution to which section 355 applies.The proposed regulations adopt a tracing method pursuant to which the basis of each share of stock or security received in a reorganization under section 368 is traced to the basis of each surrendered share of stock or security, and each share of stock or security received in a distribution under section 355 is allocated basis from a share of stock or security of the distributing corporation.The regulations also set forth the requirements for designated Roth contributions under a section 403(b) plan and address the application of the universal availability requirement to the right of any employee to make designated Roth contributions under a section 403(b) plan. It is published weekly and may be obtained from the Superintendent of Documents on a subscription basis.

Until further guidance is issued, the Service will disregard a spousal right of election for purposes of determining whether a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT) meets the requirements of section 664(d)(1)(B) or (d)(2)(B) of the Code, provided that the right of election is not exercised. Bulletin contents are compiled semiannually into Cumulative Bulletins, which are sold on a single-copy basis.

In the course of developing the proposed regulations, the IRS and Treasury Department considered whether a tracing method or an averaging method should be used to determine the basis of stock and securities received in such transactions.

The proposed regulations’ adoption of the tracing method is based on the view of the IRS and Treasury Department that, in light of the carryover basis rule of section 358, a reorganization is not an event that justifies averaging the bases of exchanged stock or securities that have been purchased at different times and at different prices.

Moreover, the adoption of the tracing method reflects the concern of the IRS and Treasury Department that averaging the bases of exchanged blocks of stock or securities may inappropriately limit the ability of taxpayers to arrange their affairs and may afford opportunities for the avoidance of certain provisions of the Code.

Under the proposed regulations, the basis of each share of stock or security received in an exchange to which section 354, 355, or 356 applies is generally the same as the basis of the share or shares of stock or security or securities exchanged therefor.

The Bulletin is divided into four parts as follows: To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts.